The Morrison Government has been returned – and it is the Morrison Government – which has been returned without the semblance of an economic policy. And this lack of a credible economic policy did not stop Morrison winning an election in which the economy appears to have been the deciding issue.
The truth is that the Australian economy is not in good shape. Sure employment is continuing to grow, but output, productivity and wage growth are all weak. In addition, the international economic outlook is deteriorating, with the risk of a trade war between the US and China, which must damage Australia’s economic prospects.
Morrison has done nothing to prepare Australia to meet these challenges. This neglect may be because Morrison doesn’t recognise the present dangers, but it is equally likely that he has no ideas.
Morrison and his team should be thinking about policies to improve productivity growth and low wages, which are central to lifting our economic performance. But in these critical areas, Morrison offers a policy vacuum.
Instead the Coalition is pinning all its hopes on tax cuts. It can be expected to quickly legislate the tax cuts that both sides of politics promised before the election. These immediate tax cuts will provide a boost for low and middle-income earners over the next three years, and this will help sustain aggregate demand.
In the longer term, however, Morrison is only promising further tax relief for high income earners. As I have previously argued, (Pearls & Irritations, 15 May 2019), with profits already high, investment and productivity growth will depend mainly on the increase in aggregate demand, and these tax cuts which are limited to the rich, will do nothing for aggregate demand; and in any event they are another three years away.
In addition. Morrison’s proudest boast of returning the Budget to surplus, will require an incredible degree of future expenditure restraint, with real government payments only projected to increase at an annual rate of only 1.3 per cent over the next four years (see Pearls & Irritations, 14 May 2019). In the unlikely event that this expenditure restraint can be sustained, that in itself is likely to damage the productive capacity of the economy, as it will require inadequate expenditure on research, education and training.
To my mind the most likely prospect is that the Australian economy will continue to stagnate over the next three years, as has been the experience for a decade or more in most of the advanced economies. As Stephen Bell and I have argued in our book, Fair Share, the critical challenge is to preserve a more equal distribution of income in the face of technological change that is hollowing out middle-level jobs and is biased in favour of higher skills.
In this context, what is especially worrying is that the reaction by many working people to this economic stagnation is not to demand new policies, designed to assist people to adapt to technological change. Rather many of the victims prefer to blame newcomers, such as new migrants, “elites” and globalisation. This is perhaps the lesson of Saturday’s election – as it was previously in the American Presidential election and Brexit in the UK.
Michael Keating was formerly Secretary of the Department of Prime Minister and Cabinet, and the Department of Finance.